Simplistic nature of Solvency II standard formula gives regulatory arbitrage potential


The overly simplistic nature of the standard formula approach tested by the fifth quantitative impact study (QIS 5) leaves open the possibility for regulatory arbitrage, particularly for annuity providers, according to a leading UK-based actuarial consultancy.

A key simplification was the absence of a volatility shock, which was withdrawn from QIS 5 at the last moment by the Committee for European Insurance and Occupational Pensions Supervisors (Ceiops). A second example is the adoption of a

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